Ensuring sufficient investment to meet our Net-Zero target

Writing for Utility Week GIIA CEO Lawrence Slade says there is no time to waste on securing net zero investment … 

Infrastructure is of course key to modern life, and even while many of us are now no longer commuting, digital networks have replaced transport infrastructure as being essential to our everyday lives.  As we progress further into the 2020s and as the pressure to decarbonise our economy to meet our 2050 net-zero carbon goals becomes stronger, so will the pressure grow to ensure that our infrastructure is fit-for-purpose not just for today but for decades to come.  Worryingly in the most recent Global Infrastructure Investor Association (GIIA) and Ipsos MORI report 65% of people think that Britain is not doing enough to meet infrastructure needs – a figure that, for instance, indicates that the UK lags behind other G8 countries.

Achieving Net-Zero will require substantial investment across both greenfield and brownfield infrastructure.  A recent report produced by the GIIA in partnership with PwC indicated that to finance the transition to net-zero, the UK would need to attract investment in the 2020s alone of at least £400bn.

While of course, it is also fair to say that the government will also fund varying amounts of the investment required- COVID-19 has added immense fiscal pressure to already strained public budgets, thereby increasing the need to attract private finance.  However, to complicate matters, the UK is not the only nation or trading bloc to have committed to net- zero, and the huge investment that this entails.   Given the scale of investment needed around the globe, the UK must ensure that it has the appropriate policy and regulatory frameworks in place that will ensure it can compete to attract capital from long-term investors.   This necessity should not be taken for granted as over the past few years foreign direct investment levels overall into the UK have been falling.  The House of Commons Library shows that by 2019 FDI had fallen for the third consecutive year since 2016, having peaked at £192bn in 2016 to £35.6bn in 2019.

So, what needs to be done?

Over the past few decades, the UK has seen hundreds of billions invested in its water and energy networks alone, a sum that is nearly double pre-privatisation levels.  This investment was attracted by the UK’s excellent regulatory frameworks. But over the last decade, the view of many is that these “gold standards” have been steadily undermined, to an extent that confidence has reached a low point at the very moment when the UK needs to increase FDI.

The long-awaited National Instructure Strategy laid out the welcome expectation that substantial levels of private capital will be required to meet the UK’s infrastructure investment needs; HM Treasury expects private finance to provide at least half the required investment – while acknowledging more needs to be done to mobilise this.  For instance there is also an acceptance that the UK’s regulatory regime must be updated to reflect the different challenges of today, helping to ensure that private sector investment can be unlocked at the lowest possible cost.  Likewise, there must also be a clear understanding of the roles and responsibilities of regulators and governments, linked to a commitment that aligns the interests of consumers in both the short and the long term.

But regulatory reform is just part of what needs to happen if we are to see the required levels of private investment in the UK’s infrastructure across the length and breadth of the country helping to deliver against not just the net-zero agenda but importantly helping to meet the government’s levelling up ambition.

The recent publication of the National Infrastructure Strategy, the Energy White Paper, and other government policy papers has provided an encouraging glimpse of the government’s direction of travel.  However, as the National Infrastructure Commission recently called for in its 2021 Monitor Report, we desperately need a clear framework that sets out the delivery plan that will achieve these policy goals; a plan that will provide investors sight of a strong pipeline of projects laid out over the next few decades.

The government needs to work with industry to resolve issues tied to more nascent technologies such as CCUS and hydrogen where revenue models are underdeveloped.  There needs to be an honest conversation about the role and expectations for these technologies; their ambitions for instance for hydrogen across industrial applications and domestic applications and the gas versus electric heat debate for example. Only when investors and industry can see these answers and can judge how the government is seeing the risk and reward balance can sensible decisions be made.

Over the years there has been much debate about the benefits of private investment in the UKs infrastructure.  We strongly recommend that all parties work together to build a strong transparent evidence base that can allow stakeholders to make accurate performance evaluations of the value of private investment in, and operation of, our infrastructure.  This will assist and improve future financing decisions; help rebuild trust and aid discussions around the suitability of different financing models across differing sectors.

Also, it is of the upmost importance that the Government should carefully consider the application of powers granted by the National Security and Investment Bill.  The scope of the bill is very wide, creating the likelihood that a large volume of notifications should be expected when the powers become operational. Given this, Government must ensure that the unit set up to manage this is fit for purpose from day one, ensuring any delays in deal approval are kept to a minimum and that there is as much transparency as possible around decisions.  Moves to encourage early informal advice are to be welcomed, this should be combined with a determination from government to use its powers sparingly, to help continue the view of the UK being a positive destination for foreign investment.

As we approach COP26 the government, regulators, and investors must work together across this agenda to stand a chance of delivering the scale of ambition for UK infrastructure.  It is often said that there is no shortage of money, and indeed the GIIA estimates that the leading private investors in infrastructure have at least US$200bn of “dry powder” available for deployment, with new funds being raised all the time.

But there is a shortage of time.

When Net Zero 2050 was announced, there were 122 quarters before 2050.  Since the legislation came into being on 27th June 2019, we have burnt through 6 of these and are nearly through the 7th.  As a country we have the technology, skills, and businesses; let’s not waste any more time and ensure we get the right frameworks in place to guarantee we also have the required levels of investment from private as well as public sources.

https://utilityweek.co.uk/no-time-to-waste-on-securing-net-zero-investment/ 

New Blog: Fight for net zero goes on, despite crisis

Writing for Utility Week CEO Lawrence Slade says even in these difficult times, utilities must continue to focus on the need to reduce emissions and the shift to a zero-carbon economy.

Our lives have changed completely in the space of just a few short weeks. Perhaps, in terms of how we work and manage our lives, things will never quite go back to normal, with more flexible working across thousands of roles and companies becoming the norm.

Uniquely, everyone in the country is affected. This will bring many challenges, not least to the National Health Service, whose staff deserve our heartfelt thanks for their amazing efforts, but also to those working to ensure the essential infrastructure that we all rely on, including electricity, gas, water, broadband and tele­coms networks, remains operational over this difficult period. The robustness of our utilities is something that, as a sector, we should be proud of.

But while it is understandably difficult to look beyond the next few weeks, we must. The underlying issues we faced before the Covid-19 crisis remain. For many reasons it is a blessing that we are emerging from winter, with the warmer weather able to bring respite on a number of fronts.

While this is welcome, many of our properties are still poorly insulated and thousands of families are living without modern levels of comfort. Furthermore, reduced incomes and sudden bill shocks as a result of economic volatility will not help, making it certain that many families will need further short-term help to manage debt in the coming months, as well as long-term solutions such as the provision of energy efficiency. Linked to this, of course, is the need to reduce our emissions and the longer-term move to a zero-carbon economy. The urgency to act is still there.

To meet the challenge of climate change, we know that many billions of pounds need to be invested in our infrastructure over the coming decades. Unfortunately, time is not on our side.

The chancellor’s moves to support the economy will provide vital respite for many businesses and families and will need to continue for some time. But, as has happened at other times of national emergency, it is important that we also look ahead to the future. We need to look at how we will get our economy moving again and how we invest in our communities to ensure value is created for all stakeholders.

Before the crisis hit, 2020 was, as the National Infrastructure Commission said, shaping up to be a year of decisive action. Reports suggested that the budget would give long-awaited clarity on infrastructure investment, building on the announcements in November that laid out how much money was to be invested in our infrastructure and how that could be split between the private and public sectors.

This was to be seen as a new start, with investment expected to be made in infrastructure projects across the UK – part of the process of “levelling up” our society away from an historical focus on investment in the South.

Moves to allow onshore wind and solar projects to bid in the contracts for difference auctions were welcome, likewise the move to speed up the roll-out of fibre-optic cabling for better broadband connectivity, but we need to keep the momentum going.

Addressing climate change, making the investment in new – and upgrading existing – infrastructure and delivering a clean, carbon-free economy is something that future generations will thank us for. When we surface from the current crisis, we have the opportunity to reset society’s relationship with the built environment and pull the country together.

Combining government funding with that available from the private sector will allow us to achieve much more, much faster. Utility projects do not happen overnight; rather they take years of planning and building before delivery. As a country, whether it is across our energy, water or telecoms networks, we need to plan and to act to ensure that the right long-term strategy is in place.

A strategic dialogue between government, devolved administrations and the private sector will ensure that private capital is deployed where it is most needed to aid economic recovery. To be absolutely clear, the government’s immediate priority must be to respond to the health crisis by ensuring our hospitals and hard-working staff are provided the necessary equipment needed to save lives.

But at the same time, working together we can begin the important job of delivering the infrastructure needed to propel the country’s economy.

Private investors stand ready with capital to deploy to support these public sector-led initiatives, as well as offering unrivalled expertise in project management and delivery.